The Haves vs. Have-Nots

Every election cycle, we are overwhelmed with an onslaught of public policy proposals that have little to do with finding pragmatic solutions and much to do with tapping into the anger and frustration of an electorate whose own interests are largely ignored. This is often achieved through a divide-and-conquer strategy that pitches people in different social classes against each other. Too often, however, these voters have more common interests than they imagine and end up voting against their own best interests because of ideological rhetoric rather than thoughtful analysis of policies.

When it comes to the haves and the have-nots, or even the have-some-but-not-a-lots, the truth is, there are a lot of people who get screwed in our everyday economy and they are not all in the same tax bracket. Some are very wealthy, some are very poor. Some are in between. It's useful not to think of it in terms of an absolute dichotomy. Sometimes it seems like most economically-disadvantaged people think of their wealthy counterparts as by-and-large being greedy, socially-reckless individuals who game the system and receive tons of unfair advantages, while conspiring to keep every poor person down. Conversely, it seems that too many wealthy people equate the poor with people who do not work, lazily getting by on government handouts.

Newsflash: neither assumption is true. I've gotten to know many millionaires over the course of my life. They don't all work on Wall Street or for oil companies. Many, in fact a surprisingly large amount, are small business owners who employ local workers, treat them fairly and are disproportionately involved on the local civic level. This might be partially because they recognize that they have an enormous stake in maintaining the welfare of the community they are so heavily invested in, but it might also be because they're good people.

Most take an interest in the local education system beyond the needs of their own children and often rally for quality of life issues such as traffic, over-development and environmental degradation because they do not want to see the best parts of their community destroyed. In many cases, this class of citizens have legitimate complaints concerning over-burdensome (and sometimes laughably unjustified) government regulation at all levels, along with other growth-choking bureaucratic red tape that is imposed on their business by people who do not understand the way it works and how even ideas that are good in theory can have negative consequences once implemented.

Their experience with government is often very different than the average person. However, it is probably wise that they do not misappropriate their statistically-unique experiences in constructing their theories about government as a whole or what its role in our society should be. As the brilliant novelist Richard Ford once put it, the problem with most wealthy people in terms of their politics is that they too often mistakenly believe that what was best for them personally, was best for the nation as a whole. I've found much truth in that statement through my own experiences.

Conversely, I've gotten to know many more people over the years who range from destitute to modestly poor. The vast majority of them have jobs, many of them more than one. They work very hard, sometimes doing excruciating labor, and sometimes performing roles in our economy that range from thankless to demeaning. They too are more often than not good people, in my experience. They care about their family, community and neighbors. They don't look for handouts but often resent the fact that such a labor-intensive life that leaves so little time for recreation doesn't even allow them to pay for the necessities–gas, food, braces for their kids, prescription medications, etc.–let alone the means to live it with even occasional enjoyment of the things so many people take for granted–travel, fine dining, a car that reliably starts when the key is turned.

On a different level, there is a growing class of profoundly well-off Americans who acquire staggering wealth without the same value-added effect as our earlier examples, and often through means that are not part of an equitable arrangement. I think most Americans have a healthy respect and admiration for people who build things, who genuinely affect the growth of domestic productivity–especially if they are socially responsible in doing so. Conversely, I think most Americans–both wealthy and poor–have a cynicism and collective dislike for people who make their fortunes gaming the system to siphon off wealth created elsewhere.

As I've mentioned previously, total compensation in the financial sector (including profits, wages, salary and bonuses) hit an all-time high in 2013 at around 9 percent of GDP, more than twice its historical average. Wall Street has been uniquely inefficient in that the costs associated with what it does–match investors with borrowers–have continued to grow exponentially, while the relative cost of just about every other endeavor in the economy has become increasingly inexpensive because of the unprecedented increase in technological advances. Wall Street has often used technology as a way to increase profits and decrease efficiency, such as flash trading, which uses mathematical algorithms to find and trade stock, buying and selling at lightning-fast speeds, bleeding out money without providing any of the useful benefits of investment.

The financial services industry peels off an exorbitant and ever-increasing amount of the economic growth it supposedly exists to facilitate, diverting wealth that could aid true growth and instead consolidating it into very few hands that did little to create it and will do less to aid growth by distributing it throughout the economy. This is the exact sort of predictable inefficiency that should be corrected through both industry regulation and the tax code. However, a governmental system that is increasingly dictated by financial contribution directed toward keeping public officials in power, has rendered the largest economic sectors most powerful, ensuring that an equitable system is not only not attained but deliberately avoided.

Everyone seems to agree that hedge fund managers should not be able to use the carried interest loophole to pay far less than half of the federal taxes they would otherwise, yet no one does anything about it. Everyone seemed to think that rescued banks should not be able to use money lent to them interest-free by the taxpayers to loan money back to the government at interest, yet that's exactly what happened when banks used TARP funding to buy treasury bills instead of loaning money into the economy where it was needed. Still, they got away with it, making a fortune while bragging about paying back their TARP funds ahead of schedule.

This pattern is repeated in many other industries that all seem to have a few things in common: they are dominated by large, multinational behemoths; have increasingly high entrance barriers; and their continuous operation are of vital interest to the nation's economy and/or security–i.e., energy exploration and production, oil and gas utilities, retail banking, defense contracting, mining, hospital corporations, etc.

By constructing a narrative that pits the haves vs. the have-nots, rather than an individual examination of each issue, those at the very top of the economy (who are ever-increasingly arriving there via these non value-added roles) have created a political dynamic in which their relatively small numbers are magnified by convincing those way down the ladder to carry their water. By framing every effort to inject equity into those sectors as "an attack on wealth," they are too often able to rouse the aforementioned small-business millionaires via their loathsome reaction to "taxes on the rich and excessive regulation."

This dynamic can be cured through intense efforts focused on reducing the very real problem of too much tax and regulation on that lower level of small-business commerce, while effectively implementing tax and regulation policies on the higher-level, less competitive operations where they will do much more good. Regulation and tax code variance are important tools that, when used effectively, benefit the economy and society as a whole.

Let's look at corporate taxes in the U.S. The top bracket has been 35 percent since 1993, making it one of the highest statutory tax rates in the world. Because of loopholes and tax giveaways, the effective tax rate for large corporations is about 12.6 percent according to the Government Accounting Office, which is on par with some of the lowest rates in the developed world. The problem is that many of the not-so-large corporations pay a much higher rate. Why? Easy, they have far less clout with our bought-and-paid-for government.

There are even bigger loopholes that allow companies like General Electric to regularly enjoy years in which they pay no federal income taxes at all and sometimes come out ahead because of incentives. Then there are offshore tax havens, where corporations hide much of their wealth and the corporate inversion scam in which they become a part of a "foreign company," again headquartered in some tax-friendly country like Ireland, at least on paper. We all tend to agree that these loopholes are wrong, but they remain part of the gap between the local businessman and the local laborer (editor's note: on Wednesday, the federal government took the initial steps to make corporate inversions less attractive, though only Congress can close the loophole).

The former tends to think that the real problem is their high effective tax rate, but by siding with the lower-our-taxes-now crowd, they are only helping to perpetuate the status quo. The big lobbying firms that represent the top corporations only care about their clients, not random small business. And, no matter what they say rhetorically, those clients don't want to see their favored status extended down the line because it's actually all of those small businessmen paying the higher rate that makes it possible. So, is voting for (or otherwise supporting) a candidate who is taking millions of dollars from these special interests likely to help the small businessman? Of course not, yet, more often than not, they do so anyway. Why? They fall for the rhetoric.

For many of them, they would be better off with something like national, single-payer health care, which would relieve them of the burden of skyrocketing health insurance premiums for themselves and their employees, controlling one of the most unpredictable and out-of-control costs for most small businesses. Yet because such policy is too often associated with high-tax liberalism, it is too often considered to be the ideological enemy of the small businessman.

Conversely, let's look at wages. When adjusted for inflation, they've been flat for four decades. Many corporatists argue that while corporations have indeed taken advantage of trade deals to send manufacturing jobs to developing nations with cheaper labor, the result has been cheaper goods for Americans. This is true. Walk into any Walmart and you can see how much less expensive giant television screens have gotten over the years. A 40-inch flat screen costs less than half of what it did less than a decade ago. But while consumers can indeed fill their homes with cheap goods from China, the costs of things like health care, energy, education and quality, healthy food has outpaced normal inflation by about 3-1.

On the bottom end of the ladder, the federal minimum wage has not come close to keeping pace with inflation. Instead of rising to keep a relative purchasing power, it's lagged behind, making it less than a living wage by any stretch of that term. Raising wages can make goods more expensive, but it also puts more money into the hands of consumers on the lower end, who statistically spend more than 100 percent of all earnings. In an economy like ours, where consumption is 70 percent of GDP, having a lower and middle class with greater purchasing power is a very good thing.

Conservatives have promoted the idea of trickle-down-economics for 35 years, arguing that by continuing to slash taxes on the wealthiest Americans and biggest businesses, we can encourage investment (or spending) at the top that will trickle-down through the lower taxes in the form of new jobs and growth. The only problem is that it hasn't worked. The so-called "dynamic effect" never seems to happen, mostly because the wealthiest Americans have been able to increasingly invest their money successfully outside of the domestic economy or hide it in legal or not-so-legal tax shelters.

Ironically, the same voices who claim that dynamic effect will work if we just lower taxes more, do not seem to realize that it's the very same argument that is used for higher wages. But the higher wages argument is supported by economic principles that suggest it will actually work, without robbing the treasury of revenues the way that tax cuts do. If you give a billionaire an extra million dollars in tax savings, they are not as likely to spend it into the economy as 100 lower-middle class people who've netted $10,000 in higher wages. Why? Mostly, because the former can afford to horde it in a way that the latter cannot.

That money that is spent into the economy by a far larger number of people creates economic activity that truly does have a continuing economic impact. What's more, rather than cost money the way a tax break does, higher wages and increased spending create additional tax revenues. Having more spenders in the economy benefits that small-business millionaire much more than if a hedge fund manager has a fatter bottom line. In fact, it will most likely benefit them more than a tax cut in their own bracket.

Just about every one of the Republican presidential candidates' tax plans have called for compressing tax brackets so that there are less of them, rather than more. Currently, someone making a billion dollars a year is paying the same rate as someone making $400,000 (unless they're a hedge fund manager of course). There are a lot more of the latter than the former. By pushing that top bracket down to $250,000, many times more earners would now have their interests aligned with the relatively-small class of super-rich, which is just the way they'd like it. In a progressive taxation system that is experiencing an ever-widening wealth gap, we should actually be looking to add tax brackets, not compress them.

This election year, it would make sense for small business owners and working-class Americans–who together make up the backbone of the country's economy–to be asking candidates in unison what they are going to do to make sure that we implement policies that will lead to a robust economy in which high-wage earning laborers are spending money that lifts local economies and the fortunes of small businessmen and women whose tides rise and fall with them. If they give them some line about lowering taxes and gutting environmental regulations for big industries, they'll know that they are not on the side of the people who really make this country go 'round.

Dennis Maley is a featured columnist for The Bradenton Times. His column appears each Thursday and Sunday. Dennis' debut novel, A Long Road Home, was released in July, 2015. Click here to order your copy.